by Rod D. Martin
April 5, 2004
Recently, I made the case for one of these proposals — eliminating the double tax on capital gains.
Today, let’s explore the case for abolition of the Alternative Minimum Tax, or AMT.
Concocted in 1969, AMT requires both wage earners and businesses to re-compute their tax deductions if the IRS deems these deductions “too numerous” relative to income.
Few Americans have ever heard of AMT, but that will likely change soon. In terms of its effect, AMT is like the proverbial snowball rolling down a mountain. Since it’s not indexed for inflation, and since deductions have risen over time, the number of taxpayers who will be paying it will rise exponentially in the coming years. The numbers are staggering: 856,000 AMT victims in 1998, an estimated 9 million by 2007, and over 20 million by 2011. Indeed, by 2011, 60 percent of all federal tax revenues will come from AMT.
So what exactly is wrong with the AMT?
First and foremost, it’s a form of double taxation, which is a very big part of what ails our current tax system. Under no rational standard of fairness is it right to tax someone’s hard-earned income a second time.
If double taxation is immoral, AMT may well be the chief of sinners. It gives Uncle Sam a second crack at our wallets if our legal, fair-and-square deductions let us keep “too much” of our own money.
The whole scheme is utterly outrageous and downright Orwellian. If your deductions are taken legally, and Uncle Sam doesn’t like the result, the rules change and you pay more. In other words, the government giveth, and the government taketh away. And it giveth and taketh your own money.
Besides brazenness, the AMT also acts as a perverse incentive to keep the middle and upper middle classes “in their place.” Why work harder or longer for more money if the rules are rigged against your keeping it? AMT is perfectly designed for the proponents of class warfare; but it is anathema to anyone who believes in the American Dream.
Finally, as it gathers steam, AMT is costing our nation more and more, not only in lost productivity, but also in the counterproductive waste of time and money millions more Americans must spend either attempting to comply with its requirements or hiring accountants to do so.
To illustrate, a quick look at Form 6251, the IRS form for calculating this tax, is in order. It isn’t pleasant.
Indeed, Form 6251 is positively byzantine. For the 2003 tax year, it contains 65 lines of utterly mind-numbing computations.
Here, for example, is line 46:
“If you did not complete a Schedule D Tax Worksheet for the regular tax or the AMT, enter the amount from Schedule D (Form 1040), line 43 (or if that line is blank, the amount from Schedule D (Form 1040), line 31). Otherwise, enter the amount from line 32 of the Schedule D Tax Worksheet on page D-11 of the instructions for Schedule D (Form 1040) (or if that line is blank, the amount from line 20 of that worksheet). Refigure all amounts for the AMT if necessary (see page 8 of the instructions.”
And that’s just one line.
Computation is so complex, the IRS “Instructions for Form 6251” alone runs to eight pages. That’s just one form. You need instructions just to read the instructions.
And if that weren’t bad enough, the corporate counterpart of the AMT — which applies to a growing number of America’s small businesses — is even worse.
Its worst offense? Business depreciation.
Depreciation of capital equipment is the number-one reason companies fall into the AMT’s clutches. This means the corporate AMT falls hardest on America’s capital-intensive sectors like mining, manufacturing, transportation, construction, and utilities, all vital areas for job growth. Thanks to AMT rules, American firms in this arena labor under the worst capital-cost-recovery system in the developed world. Even the best among them lose part of their competitive edge to inferior companies abroad who face no such disadvantage.
For a nation that wrings its hands over the loss of manufacturing jobs, clinging to this awful tax is insane. AMT is a certifiable job killer in every industry it touches. And even if it weren’t, it’s just plain wrong. It’s high time we abolished this viciously unfair, prosperity-destroying tax, both in its individual and corporate forms — before it rolls over us all.
Read the Whole Flat Tax Series, by Rod Martin